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The 33-year-old has taken over from Matt Bloomfield, who was dismissed earlier this month after a tenure of under a year at Kenilworth Road.
This marks Wilshere's initial full-time managerial position, as he steps in to lead a Luton team currently placed 11th in the third division after suffering back-to-back relegations.
He secured the position over Leyton Orient's Richie Wellens and is thought to have entered into a three-year contract.
Chris Powell has also joined the Luton staff as Wilshere's assistant; the former England left-back had been with Walsall for a mere two weeks as the interim first-team coach, taking over for Gary Waddock while he recovers from ankle surgery.
"It is a tremendous honor and a privilege to be appointed manager of Luton Town," Wilshere stated on the club's official website, recalling how he left the Hatters at age nine to join Arsenal.
"This feels like a full-circle moment for me. I was just eight when I first arrived at Luton as a young boy, so you could say it is destiny that my first full-time role in management is with this club.
"The narrative of this club motivates me. It is founded on belief, unity, and diligence.
"The club has demonstrated remarkable character both on and off the field recently, and I am honored to take on the responsibility of guiding this group into the future."
After ending his player career in 2022, Wilshere had a stint as the head of Arsenal's under-18 team and spent a significant part of the last season as a first-team coach at Championship side Norwich City.
He was appointed as interim head coach for Norwich's last two league matches following Johannes Hoff Thorup's exit, before departing Carrow Road at the season's conclusion.
Luton gained promotion to the Premier League under Rob Edwards in 2023, but after just one season in the top tier, the Hatters faced a second straight relegation last season.
Bloomfield was brought in when Edwards left Kenilworth Road in January, but the previous Wycombe Wanderers manager failed to maintain Luton in the Championship, achieving only 12 wins out of 33 matches.
Wilshere's debut match as Luton’s manager will be a home game against Mansfield Town on Saturday.
"He has made a strong impression during our thorough selection process with his passion for football, his ambition in management, and his profound understanding of Luton Town," remarked Hatters' chief executive Gary Sweet.
Wilshere began his professional career at the age of 16 with Arsenal in 2008 and won the FA Cup twice with the Gunners, appearing nearly 200 times before transferring to West Ham United in 2018.
He subsequently played for Bournemouth and Danish club Aarhus prior to retiring at 30.
On the international stage, Wilshere represented England 34 times, taking part in the 2014 World Cup and Euro 2016.
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